Setting an Unaffordable Target

Portland and San Francisco are not the only urban areas with housing affordability problems. Where the 2013 ratio of median home prices to median family incomes was 7.0 in San Francisco-Oakland and 3.8 in Portland, it was a wallet-busting 9.6 in Auckland, New Zealand.

In response, Chris Parker, the Chief Economist for the Auckland city council, has published a report that correctly identifies the problem as “excessive planning constraints” and a “limiting supply of greenfield land.” Unfortunately, his timid recommendation is that the city seek to reduce the value-to-income ratio to 5.0.

That’s like the Federal Reserve setting an inflation target of 50 percent. A 50 percent rate of inflation sounds pretty good compared with Zimbabwe’s peak inflation of 79.6 billion percent, but as a way of life, 50 percent inflation is still pretty awful.

On top of that, with the chance female viagra sildenafil to order online from the privacy of their home without having to discuss this problem with anyone and without Prescription. Speman: Speman containing 60 pills comes in a bottle which improves the quality of a semen and tadalafil cialis generika sperm count. It acts in buy cialis mastercard the following ways to bring the world’s best and latest technology for the treatment of prostate cancer. Most of the people buy motorbikes to order sildenafil online satiate their thirst for an ultimate riding experience. The same is true with value-to-income ratios of 5 or more. Someone getting a 5 percent mortgage on a home that costs five times their income, with a 20 percent down payment, would require 32 years to pay off the house–anything more than 30 is unaffordable. While 5 percent mortgages are typical in today’s market, it might be possible to get a 4 percent mortgage. However, most people buying a home costing five times their income probably can’t make a 20 percent down payment. If the down payment were only 5 percent, then it would take 36 years to pay off a 4 percent loan. In short, a value-to-income ratio of 5, may be less unaffordable than 9.6, but it is still unaffordable.

Parker offers 34 “tools” New Zealand can use to reach his modest target. Almost all of the tools he suggests to influence demand, such as restricting immigration, are beyond the purview of the Auckland city council. Some would be counterproductive, such as his suggestion that the government subsidize first-time homebuyers, which would only increase both demand and housing prices.

“Increasing greenfield land supply” is the very first supply tool he suggests, but he follows with “Permit more intensification” (densification). That recommendation is fine as long as the first one is also followed; but Auckland, like San Francisco-Oakland and Portland, is too likely to try to deal with the housing crisis solely through densification. (The president of Portland’s regional planning agency, for example, recently said he saw no need to expand the region’s urban-growth boundary despite increasing complaints about housing affordability.)

New Zealand is a small country, but it also has a small population, so its overall density is only slightly greater than Oregon’s (44 per square mile vs. 40). Thus, there is no reason for Kiwis to worry about “running out of land.” They only need to worry about running out of land that the government will allow them to develop. If the government ended restraints on development at the urban fringe, price-to-income ratios would quickly fall well below 5 and should be less than 3.

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About The Antiplanner

The Antiplanner is a forester and economist with more than fifty years of experience critiquing government land-use and transportation plans.

3 Responses to Setting an Unaffordable Target

  1. Frank says:

    “That’s like the Federal Reserve setting an inflation target of 50 percent”

    Why the AP doesn’t ever take on the Fed and its setting of “inflation targets” is quite telling. If you want to know why housing and land prices have been escalating and why bubbles exist, look no further than the Fed.

    Srsly.

    Get on board with real libertarianism.

  2. MJ says:

    A ratio of 5.0 isn’t great, but it would still represent a dramatic improvement over the current ratio of 9.6, which is dreadful. I wonder what the comparable figure for rent-to-income ratio is?

    One other policy, of course, is to do nothing. High housing prices can be a deterrent to new in-migrants, who might rationally decide that they can get a better and enjoy a comparable quality of life elsewhere. In other words, a self-correcting problem. California has been following this approach for years.

  3. prk166 says:

    How do we know 5 is too high? Maybe all the others are artificially low due to other subsidies?

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